Water supply and sanitation in the Philippines

This article has last been updated in December 2012. However, some sections of the article may be out of date, for example if the data found in sources are from an older date. Please feel free to update this article.

Philippines: Water and Sanitation
Data
Water coverage (broad definition)	92% (2010) [1]
Sanitation coverage (broad definition)	74% (2010) [1]
Continuity of supply (%)	Metro Manila (2007): 98% (East Zone);[2] 42% (West Zone)[3] 21 hours/day (45 small town utilities, 2004) [4]
Average residential water use (l/c/d)	175 (national average, before losses, 2000)[5][6] 119 (45 small towns, 2004) [4]
Average urban water tariff (US$/m³)	Metro Manila: US$0.33 (East Zone), US$0.46 (West Zone)[7]
Share of household metering	common in urban areas[8]
Annual investment in water supply and sanitation	US$ 1 per capita (average 1983–2003)[9][10][11]
Share of self-financing by utilities	Low
Share of tax-financing	n/a
Share of external financing	n/a
Institutions
Decentralization to municipalities	Yes, since 1971
National water and sanitation company	No
Water and sanitation regulator	For public supply: National Water Resources Board (NWRB)
Responsibility for policy setting	Department of Environment and Natural Resources (DENR)
Sector law	No
Number of urban service providers	About 1,500[12]
Number of rural service providers	Thousands

Water supply and sanitation in the Philippines is characterized by achievements and challenges. Among the achievements are a high access to an improved water source of 92% in 2010; the creation of financially sustainable water service providers ("Water Districts") in small and medium towns with the continuous long-term support of a national agency (the "Local Water Utilities Administration" LWUA); and the improvement of access, service quality and efficiency in Manila through two high-profle water concessions awarded in 1997.^[13]

The challenges include limited access to sanitation and in particular to sewers; high pollution of water resources; often poor drinking water quality and poor service quality; a fragmentation of executive functions at the national level among numerous agencies; and a fragmentation of service provision at the local level into many small service providers.^[14]

Access

According to the Joint Monitoring Program (JMP) for Water Supply and Sanitation of UNICEF and WHO, access to an improved water source increased from 85% in 1990 to 92% in 2010. Sanitation has long been regarded as a private responsibility, resulting in almost no connections to a sewerage system.^[15]

Access to Water and Sanitation in the Philippines (2004)[1]
		Urban (49% of the population)	Rural (51% of the population)	Total
Water	Broad definition	93%	92%	92%
	House connections	61%	25%	43%
Sanitation	Broad definition	79%	69%	74%
	Sewerage	7%	2%	5%

Independent surveys estimate a lower access rate using a narrower definition of supply. One estimate indicates that in 2000 only 63% of the population had access to publicly provided drinking water, with the rest relying on self-supply.^[16]

Service quality

Continuity of supply

In 2004, water supply was available on average for 18 hours each day in the West Zone of Metro Manila and 21 hours in the East Zone. According to their respective websites, the utility responsible for water supply in the East Zone of Metro Manila increased 24-hour water from 26% in 1997 to 98% in 2007,^[2] whereas in the West Zone, 42% of the customers had an uninterrupted supply in 2007.^[3] In a 2004 sample of 45 water service providers with different management models and sizes, the National Water Resources Board (NWRB) found an average availability of 21 hours per day. 27 providers offered 24-hour service.^[17]

Drinking water quality

Especially in urban areas, water quality does not meet the standards set by the national government. As a result, waterborne diseases remain a severe public health concern in the country. About 4,200 people die each year due to contaminated drinking water.^[16]

Wastewater treatment

Only 5% of the total population is connected to a sewer network. The vast majority uses flush toilets connected to septic tanks. Since sludge treatment and disposal facilities are rare, most effluents are discharged without treatment.^[16] According to the Asian Development Bank, the Pasig River is one of the world's most polluted rivers.^[12] In March 2008, Manila Water announced that a wastewater treatment plant will be constructed in Taguig.^[18] The first Philippine constructed wetland serving about 700 households was completed in 2006 in a peri-urban area of Bayawan City which has been used to resettle families that lived along the coast in informal settlements and had no access to safe water supply and sanitation facilities.^[19]

Water resources

Although water resources become scarce in some regions and seasons, the Philippines as a whole has more than enough surface and groundwater. However, the neglect of a coherent environmental policy led to the actual situation, in which 58% of the groundwater is contaminated.^[20] The main source of pollution is untreated domestic and industrial wastewater.^[12]

Pollution

One third of Philippine river systems are considered suitable for public water supply.^[20] It is estimated that in 2025, water availability will be marginal in most major cities and in 8 of the 19 major river basins.^[21] Besides severe health concerns, water pollution also leads to problems in the fishing and tourism industries.^[22] The national government recognized the problem and since 2004 has sought to introduce sustainable water resources development management (see below).^[23]

Water use

In 2000, as a whole 28.52 billion m³ of water were withdrawn from various sources in the Philippines, of which 74% were used for agricultural purposes. Industry used another 9%, leaving 17% or 4.8 billion m³ for domestic consumption,^[24] resulting in an average water production of 175 liters per day per capita (l/d/c).^[6] In a 2004 sample of 45 water service providers, the NWRB found an average consumption of 118 l/d/c. The highest consumption was recorded in the East Zone of Metro Manila with 232 l/d/c.^[25]

History

From the Philippines' independence in 1946 until 1955 most water supply systems were operated by local authorities. From 1955 to 1971, control of urban water supply was passed to the national government.^[26] In order to improve service delivery, the sector has been repeatedly subjected to extensive reforms which created numerous institutions and responsibilities. However, comprehensive water resources management was only introduced in 2004.

Marcos administration (1965–1986)

The Manila Waterworks Authority, founded in 1878, became part of the National Waterworks and Sewerage Authority (NAWASA) when it was founded in 1955 and was transformed into the Metropolitan Waterworks and Sewerage System (MWSS) in 1971 under the government of Ferdinand Marcos. MWSS was made responsible for service provision in Metro Manila, whereas other municipal and provincial water and sewerage systems in about 1,500 cities and towns were transferred back to local governments.^[27]

In the latter cases, most systems were in poor condition, and most of the responsible Local Government Units (LGUs) were not able to maintain or even improve them. Consequently, a new management model for urban water supply was introduced in 1973: LGUs were encouraged to form utilities called Water Districts which would operate with a certain degree of autonomy from LGUs. They would receive technical assistance and financial support from the newly created Local Water Utilities Administration (LWUA).^[26]

In 1976, the National Water Resources Board (NWRB) was created through the National Water Code of the Philippines to coordinate policies concerning water resources.^[28] Although the Marcos administration mainly focused its water policy on urban areas, in 1980 it founded the Rural Waterworks Development Corporation (RWDC), responsible for water supply in areas where neither MWSS nor LWUA carries out the service or assists the LGUs, respectively. The RWDC was expected to create rural water supply associations in order to construct, operate, and maintain their own water supply systems in communities with fewer than 20,000 inhabitants.^[26][29]

In 1980, at the beginning of the United Nations' International Drinking Water Supply and Sanitation Decade (1980–1989) the Integrated Water Supply Program 1980–2000 was initiated by the national government. Its main objective was to increase water coverage to 70% of the Filipino population by 1987 and 90% by 1992. Consequently, the development of the sector was supported with great effort: Between 1978 and 1990, more than US$120 million were invested in 11 rural water supply projects. Nevertheless, toward the end of the decade only 4,400 functioning rural water systems, about 5% of the 96,200 potential systems, existed in the country. Many of the recently constructed systems failed shortly after completion, partly due to poor construction and service.^[30] The Asian Development Bank (ADB) found that insufficient community participation may have led to inadequate operation and maintenance.^[31]

Aquino administration (1986–1992)

When the Aquino administration came to power in 1986, it sought to abolish overlapping responsibilities. Therefore, in 1987 Local Water Utilities Administration took over the work of Rural Waterworks Development Corporation which had been created only seven years earlier.^[32] The Rural Water Supply and Sanitation Master Plan of 1988 provided for the installation of 81,900 rural water supply systems by 1991. Therefore, the Department of Public Works and Highways (DPWH) was expected to construct and rehabilitate Level I water wells, rainwater collectors, and springs. Every barangay (the smallest Philippine local government unit) should receive at least one additional potable water source. In addition, the Department of Local Government and Community Development (DLGCD) was given the task of training local water user associations in the operation and maintenance of the water facilities.^[33]

Moreover, responsibilities became more decentralized under the framework of the Local Government Code of 1991. Certain infrastructure functions were devolved to the LGUs (see below). Barangays, municipalities, provinces, and cities were authorized to finance, operate, and maintain their own water supply systems (Section 17, Local Government Code). According to the Medium-Term Philippine Development Plan 1983–1998, at the end of Aquino's term of office in 1992, 80% of the rural population was provided with Level I water supply services, whereas 61% had direct service connections in Metro Manila and 47% in other urban areas of the country were covered by Level II and III water supply.^[28][34]

Ramos administration (1992–1998)

The government of Fidel V. Ramos sought to encourage local government participation and institutional strengthening. In addition, the efficient use of water resources was addressed. It was the Ramos administration that planned, prepared, and implemented the privatization of Metropolitan Waterworks and Sewerage System.^[35]

Metropolitan Waterworks and Sewerage System' private participation

The plan to privatize Metropolitan Waterworks and Sewerage System (MWSS) emerged from the inability of the public utility to expand coverage to the growing population. By 1996, MWSS only provided water supply for an average pf 16 hours each day to two thirds of its coverage population. According to the ADB, the share of non-revenue water (NRW), water which is not billed, e.g., due to leakage and illegal connections, was over 60%, an extremely high percentage even compared to developing countries and much higher than in Seoul (35%), Kuala Lumpur (76%) and Bangkok (38%).^[36] Furthermore, MWSS depended on government subsidies due to poor cost recovery.

In 1995, the Water Crisis Act was passed, providing the legal framework for the privatization of MWSS. Private participation was implemented through a concession contract, in which the concessionaires were assigned the task of operating and managing the facilities, whereas MWSS preserved the ownership of the infrastructure.^[37] In order to facilitate benchmark comparisons, the service area was divided in two zones.

In 1997, the Maynilad Water Services, Inc., a joint venture by the French Suez and the Filipino Benpres Holding was awarded the concession contract for the West Zone, whereas the Manila Water Company, Inc., consisting of the Filipino Ayala Corporation as well as the British United Utilities and the US company Bechtel, was awarded the East Zone. The concession contracts were expected to last for 25 years and included targets concerning coverage, service quality, and economic efficiency. An objective was to increase water coverage in Metro Manila to 96% by 2006. The companies were expected to be regulated by the newly created MWSS Regulatory Office, financed by the concessionaires.

After the concession came into force, public opposition soon emerged due to repeated tariff increases. However, it is worth mentioning that tariffs at first decreased after privatization in 1997 and did not reach the pre-privatization level until 2001/2002. Moreover, the concessionaires suffered from a severe drought and the Asian financial crisis. Because of the rapid currency devaluation, MWSS' dollar-denominated debt service doubled. Consequently, tariffs continued to rise and targets concerning coverage and NRW were adjusted downward with the agreement of the regulatory agency. After all, Maynilad went bankrupt in 2003 and was turned over to MWSS in 2005. On the other hand, Manila Water had begun to make profits by 1999 and performed well financially and in reducing NRW.^[38]

In December 2006 an 84%-stake in Maynilad was competitively awarded by MWSS to an all-Filipino partnership of construction company DM Consunji Holdings, Inc (DMCI) and telecommunications/real estate company Metro Pacific Investments Corporation (MPIC) for a sales price of US$503.9 million. The concession was hailed by the financial industry, receiving AsiaMoney's Country Deal of the Year 2007 and CFO Asia's one of 10 best deals in Asia. While many public tenders impose a high equity from technical partners, this was not the case here. Also, the tender only required expertise in utilities management — including telecommunications and energy — not specifically water utilities management, which allowed a wider variety of bidders to come in.^[39]

Since 1998

According to the Medium-Term Philippine Development Plan (MTPDP) 1998–2004, the Estrada administration's main objectives concerning water were to (i) create an independent regulatory agency, (ii) develop a pricing mechanism that considers cost recovery, (iii) strengthen the implementation of watershed rules, and (iv) encourage private participation in water resources administration.^[40]

His successor Gloria Macapagal-Arroyo continued to support private participation schemes and began to pursue economies of scale in the sector. Furthermore, her MTPDP (2001–2004) calls for the creation of a single regulatory agency for all water supply and sanitation systems.^[41] After this attempt failed, economic regulation for LGUs and water districts was assigned to NWRB.^[42] In 2004, the Philippines Clear Water Act was passed to improve water quality and prevent pollution through comprehensive and integrated water management. The act was the first attempt by a Philippine government to consolidate different laws concerning water resources management as well as water supply and sanitation.^[23] The main objective of the act is to improve sanitation and wastewater treatment in the country.^[43]

On August 27, 2008, Prospero Pichay was appointed chairman of the board of the Local Waterworks and Utilities Administration (LWUA), replacing acting chair Proceso Domingo. At the same time its domestic and foreign borrowing authority was proposed to be extended to $ 900 million, upon the approval of Department of Finance and the Central Bank, the Bangko Sentral ng Pilipinas.^[44][45]

Responsibility for water supply and sanitation

Despite several attempts to introduce a comprehensive institutional sector structure, overlapping responsibilities exist in many cases. On the other hand, this may be why the sector remains highly fragmented. In the last decades, Philippine governments kept introducing new sector models, often without completely abolishing the old ones.

Administrative divisions

The Local Government Code of 1991 divided the Philippines into three administrative levels: provinces, municipalities, and barangays. All three are called Local Government Units (LGUs). The code devolved basic services to LGUs, including most health services and infrastructure provision as well as the authority to create own revenue sources and to enter into international aid agreements.

Administrative divisions of the Philippines
Division	Number[46]	Functions[47]
Provinces	81	Administering tertiary health services Involved in social welfare services and infrastructure provision
Municipalities	1,494	Primary health care Disease control Purchase of supplies and necessary equipment Municipal health facilities and school buildings
Barangays	41,995	Primary planning and implementing unit of government policies Entering into agreements and doing business Agriculture, health, social welfare, sanitation, infrastructure, public markets, among other things Limited judicial jurisdiction Limited taxation on businesses
Note: Independent cities are highly urbanized cities, separated from their mother provinces. Cities that are politically a part of a province are called component cities and are treated like municipalities. Together there are 136 cities.

Policy

General policies concerning the water and sanitation sector are formulated by the National Economic and Development Authority (NEDA) in its MTPDP. Since the 1990s, private sector participation and decentralization are the main objectives of water policies.^[28] The MTPDP 2004–2010 aims at extending coverage of potable water to 92%–96% by 2010 through public and private investment, with priority given to 400 barangays with poor water supply coverage.^[48]

The responsibilities are defined by the 1976 National Water Code and the 2004 Clean Water Act, which consolidated laws on water supply and sanitation and water resources management. The Philippine Department of Environment and Natural Resources (DENR) is the lead ministry for implementing water sector legislation,^[49] whereas the Department of Finance takes the lead in financing water policies at the national level. The National Water Resources Board (NWRB) under the DENR is responsible for water resources management. However, the NWRB has limited capacity to execute these functions because of inadequate financial and technical capacities.^[50]

The Department of Public Works and Highways provides technical assistance in rural water supply systems. National standards for drinking water quality as well as standards concerning sanitation and sewerage collection are set by the Department of Health.^[51]

Economic regulation

The models of service provision are accompanied by different regulatory agencies. In Metro Manila, the Metropolitan Waterworks and Sewerage System Regulatory Office is entrusted with regulating the two concessionaires. In the case of other private operators, the regulation model is usually determined in the individual contracts. According to a World Bank document, these pragmatic solutions derive from the absence of a more institutionalized regulatory framework.^[42] Since 2002, the National Water Resources Board (NWRB) is entrusted with economic regulation of LGU-operated systems and water districts.^[42]

Bills calling for the creation of an independent economic water regulator have been filed in Congress since 1997. However, "these gained little traction due to lack of awareness about the sector and an absence of an executive champion".^[52] In 2011 a draft Water Regulatory Commission (WRC) bill has been declared a priority. The aim is to create an apex body for water and sanitation that would replace the NWRB, LWUA, MWSS and several other agencies. It would also submit LGUs — in addition to water districts and private operators — to economic regulation.^[53]

Benchmarking

To gain an overview of the performance of the numerous service providers, the NWRB in cooperation with the Local Water Utilities Administration, DILG, the World Bank's multidonor partnership Water and Sanitation Program (WSP), and the World Bank launched the Benchmarking of Towns Water Utilities in the Philippines project. Under the project, a sample of 45 water service providers, including 2 RWSAs, 10 utilities directly managed by LGUs, 7 cooperatives, 8 private operators, and 18 water districts provided basic data, which were converted into performance indicators and compared in the NWRB Philippines Towns Water Utilities 2004 Data Book.^[54] The project was preceded by a pilot benchmarking exercise conducted in 2004, which assessed the performance of 20 small water utilities. Therefore, it is possible to compare the performance of these 20 providers in the years 2003 and 2004.^[55]

This benchmarking initiative helps to identify best practices among the service providers which may consequently be adopted by others. Furthermore, although the 2004 sample was limited to 45 service providers, the initiative provides information about the strengths and weaknesses of the individual service provision units as well as the different models of water service delivery.^[56] The project was preceded by a pilot benchmarking exercise conducted in 2004, which assessed the performance of 20 small water utilities. Therefore, it is possible to compare the performance of these 20 providers in the years 2003 and 2004.^[55]

The 2004 benchmarking exercise showed that the performance of water districts was slightly better than the performance of private operators and that both clearly outperformed LGUs in terms of access, continuity of supply, labor productivity, cost recovery and billing efficiency. The main reasons for the better performance of water districts is their ability to draw on financing, training and technical assistance by the Local Water Utilities Administration. The study also found that performance was not a function of size and that the commonly held assumption of economies of scale in water supply did not apply to the utilities analyzed in this sample.^[4]

Service provision

According to a 2005 World Bank study, approximately 5,000 service providers exist in the Philippines.^[42] Most of them only provide water, while sanitation is still expected to be a private responsibility. Within the entire country, septic tanks are the most common method of sewage treatment. In Metro Manila alone, about 75 local companies provide tank-desludging services.^[15] The water infrastructure provided is classified into three levels.

Levels of water systems in the Philippines[57]
Level I	Stand-alone water points, e.g., handpumps, shallow wells, rainwater collectors
Level II	Piped water with a communal water point, e.g., borewell, spring system
Level III	Piped water supply with a private water point, e.g., house connection

LGU-operated systems Most households in the Philippines are served by their Local Government Units (LGUs), either directly through a city or municipal engineering department or through community-based organizations (CBOs). CBOs involved in water supply include 200 cooperatives, 3,100 Barangay Water and Sanitation Associations (BWSAs) and 500 Rural Water Supply Associations (RWSAs). CBOs usually operate Level I or Level II water supply systems with support from national governments or non-governmental organizations (NGOs). In many cases, the CBOs later convert those facilities into Level III supply systems. Where the service is carried out directly by the local government, the provision receives less external support and thus is often characterized by a severe lack of technical, financial, and management capabilities. Typically, all LGU-operated arrangements do not recover their full costs and rely heavily on local government subsidies. BWSAs are very small, which hampers their potential to work more efficiently.^[58] Out of about 4,800 LGU-operated systems, 3,100 are estimated to be at the barangay level.^[42]

Water districts In urban areas outside of Metro Manila, water districts served 15.3 million people in nearly 861 municipalities in 2011. A water district is a utility that is legally and financially separate from the municipality. To form a water district, a local government needs a confirmation by the LWUA, from which the water district then receives technical assistance and financial support. The local government appoints the board members of the water districts. Despite a certain degree of autonomy, there sometimes is political interference. The model was introduced in 1973 and water districts typically have a better performance and higher cost recovery than water systems that are run directly by municipalities.^[59] There is a Philippines Association of Water Districts (PAWD), created in 1974, that fosters the exchange of experiences between water districts and provides training to its members.^[60] In 2010 USAID and the ADB agreed to support PAWD in establishing a national Water Operators Partnerships (WOPs) program that will promote twinning partnerships among Water Districts.^[61]

Large private operators In Metro Manila, the service has been carried out by two concessionaires since 1997: The Manila Water Company in the East Zone and Maynilad Water Services, Inc. in the West Zone. Although national governments have supported PSP since the 1990s, there are few arrangements outside of Metro Manila. This lack of success may partly result from the problems of the Metro Manila concession. Joint ventures exist in Tagbilaran City and in Subic Bay.^[62] Water districts as well as private operators usually provide Level III services.^[59]

Small-scale independent providers A significant share of the population in urban areas receives services from small-scale independent providers. It was estimated that before privatization 30% of the population of Metro Manila depended on them, many of them buying water in bulk from the utility to sell it on to individual users.^[63] There are also some cases of cooperation by concessionaires and independent providers.^[64] In August 2007, 250 small-scale providers formed the National Water and Sanitation Association of the Philippines (NAWASA) as a venue for SSPWPs to share experiences and learn from each other. The small-scale providers see their relationship of trust with communities, frequent customer feedback and flexible billing systems adapted to each customer's needs as their main strengths.^[65]

Water supply management models in the Philippines[66]
Supply model	Quality of supply	Number of connections	Number	Economic regulation	Average tariff per m³ (2004)[67]	Financing
LGUs/CBOs	Level I, II and III	about 50 (BWSA) – 5000 (Municipal LGU)	3,100 BWSAs up to 1,000 directly managed by LGU 500 RWSAs 200 cooperatives	NRWB	LGUs: US$0.17 RWSAs and cooperatives: US$0.18	Public NGOs tariffs
Water districts	Level III	100–135,000	861	NRWB	US$0.41	LWUA tariffs
Private operators	Level III	up to 696,805 (Maynilad Water, 2007)[3]	9	according to contract	US$0.35	tariffs

Other functions

Local Waterworks and Utilities Administration (LWUA) is a specialized lending institution that promotes and oversees the development of provincial waterworks. It is also entrusted with setting water quality and service standards for water districts. Furthermore, it provides technical assistance and is sometimes involved in the districts through board members.^[68]

P.D. 198 (May 25, 1973), the Provincial Water Utilities Act of 1973 created LWUA and the water districts.^[69] The decree authorized the formation, on local option basis, of autonomous water districts to develop the local water supply systems and the establishment of a national-level agency to cater to the needs of these water districts. According to the LWUA website, to date it has established 584 water districts covering about 691 cities and towns outside Metro Manila. It has completed a total of 1,431 water supply projects while extending P 17 billion in loans to the districts of which P11 million has been availed to the benefit of some 12 million Filipinos enjoying improved water.^[70]

DILG and local government. Concerning LGU-managed systems, the Department of Interior and Local Government (DILG) defines and enforces quality and performance standards. However, in both cases local governments retain the responsibilities for planning, financing, and regulating water supply.^[42]

Philippine Center for Water and Sanitation. The Philippine Center for Water and Sanitation (PCWS) provides technical assistance to local governments, communities and NGOs on low-cost water supply and sanitation options. It is also engaged in action research with households. It leads the Philippines water sanitation and health (WASH) coalition of NGOs and local governments. It was created in 1990 under the name of International Training Network (ITN) and adopted its current name in 1998.^[71]

Economic efficiency

Non-revenue water

In Metro Manila, non-revenue water (NRW) decreased at least in the East Zone since privatization. In 1996 it had been at 61% for Manila, compared to 35–38% in the Asian capitals Hong Kong, Seoul, Kuala Lumpur, and Bangkok. In 2002 it had dropped to 53% in the East Zone and increased to 69% in the West Zone, which encountered severe financial problems.^[72] According to the concessionaire Manila Water, the share of NRW continued to fall until reaching 11% at the end of 2010.^[73]

According to the NWRB Philippines Towns Water Utilities 2004 Data Book, the average share of NRW among the participating service providers was 27.5% in 2004. The particularly high NRW of Manila's West Zone is confirmed in the record with 68%. Generally, the smaller utilities performed better concerning NRW than the larger ones. However, many NRW data are based on estimates, given the fact that only 15 of the 45 service providers had 100% production and consumption metering coverage.^[74]

Labor productivity

Staff was reduced at Metropolitan Waterworks and Sewerage System after privatization. Whereas in 1996, on average 10 employees were responsible for 1,000 connections, in 2002 there were 4 employees, a decrease of 58%.^[72] According to LWUA, in 2002 about 7 employees per 1,000 connections worked in water districts.^[75] A study including 4 sample LGUs found 21 employees per 1,000 connections in 2002. Small LGUs suffer from their low number of total connections.^[76]

The NWRB Philippines Towns Water Utilities 2004 Data Book found on average 7 employees per 1,000 connections in 2004, whereas private utilities on average performed best (5.8) and systems which were directly managed by LGUs performed worst (9). Not surprisingly, providers with more than 10,000 connections need significantly fewer employees per connection than those with fewer than 10,000 connections.^[77]

Financial aspects

Tariffs

The fragmented sector led to different tariff structures and levels according to the respective management model. The connection fees, which are charged in most of the cases, are so high that they often impede new connections for poor consumers.^[24] The NWRB indicates an average tariff of US$0.29 per m³ in 2004 within its Benchmarking of Towns Water Utilities in the Philippines project, while the average connection fee was US$47.^[78] As indicated below, average tariffs and connection fees vary according to the model of provision.^[79]

LGU-operated systems In LGUs, tariff levels and structures vary widely. Since most connections are not metered, it is impossible to charge tariffs depending on consumption. Where LGUs provide Level I or II services, they usually charge no or very low tariffs, although connection fees are common. The costs of providing the service are usually met by local governments.^[80] The NWRB in its benchmarking project found an average tariff of US$0.17 in a sample of 10 systems directly operated by LGUs and US$0.18 for 7 cooperatives and 2 RWSAs in 2004, about half of the average tariff of private operators and water districts. The fee for a new connection was US$24 and US$49, respectively, which is also lower than among other management models.^[79]

Water districts In water districts, tariffs increased notably since 1996. The tariff structure is similar to the model used in Metro Manila, with an average tariff for the first 10 m³ and increasing tariffs for additional consumption. According to the LWUA Research Division, in January 2008 the average tariff for 30 m³ ranged from US$0.16 per m³ in Mambajo to US$0.78 per m³ in Aroroy.^[81] At the end of 2006, the national average tariff for 30 m³ was US$0.36 per m³, more than double that of 1996, when it was US$0.13 (1996 tariff converted into real 2006 prices ^[81][82])^[83] In addition, water districts usually charge connection fees.^[80] The NWRB found an average tariff of US$0.41 within a sample of 18 water districts in 2004, which is the highest average tariff of all management models. The average connection fee was US$55, somewhat lower than among private operators.^[79]

Metro Manila In the capital region, an initial tariff is to be paid for the first 10 m³ consumed, with increasing blocks for additional consumption. Furthermore, consumers connected to sewerage pay an additional charge of 50% and all users must pay a 10% environmental surcharge.^[80] For new consumers, a connection fee is charged, which was US$134 in April 2007 in the East Zone.^[84] According to the MWSS Regulatory Office, just before privatization the average tariff per m³ in Metro Manila was US$0.26. After the concession contracts came into force in 1997, tariffs dropped to US$0.05 (East Zone) and US$0.12 (West Zone). In 2006 the average tariff rose to US$0.31 in the East Zone and US$0.43 in the West Zone (all figures converted into real 2006 prices).^[7]

In a sample of 8 private operators, including the two concessionaires in Metro Manila, the NWRB found an average tariff of US$0.35 per m³ and an average connection fee of US$63 in 2004. While the tariff was highest among private operators, the connection fee was higher within water districts.^[79]

Users who rely on other sources such as private small-scale operators mostly pay more for water. In the capital region, it is a common practice to buy water from MWSS and resell. In this case, small-scale operators pay a higher tariff than the residential one and pass the higher cost on to the end-user.^[85]

In order to introduce cost recovery tariffs and effective regulation, the NWRB issued a primer on tariff setting and regulation in March 2005. The document provides the basic guidelines of tariff setting, considering the principles of financial sustainability, good governance, economic efficiency, distributive justice, and fair pricing. The manual helps to determine future revenue requirements and to set annual base tariffs based on estimated consumption levels. Furthermore, the document gives advices on tariff structures and water rate adjustments. The process of tariff approval as well as the guidelines to prepare the required annual report are described in detail.^[86] Together with the Philippines Towns Water Utilities 2004 Data Book, the document shows the great effort made by the NWRB to establish itself as the leading regulatory agency and thus improve the performance of the sector.

Cost recovery

Poor cost recovery remains one of the key challenges in the sector. Although the problem has been recognized by the national government and the MTPDPs include targets to increase cost recovery, the implementation of this objective remains unsatisfactory. The LGU-operated systems are not even able to recover operation and maintenance costs and they depend on the local governments. Water districts mostly recover recurrent costs, but most of them do not generate enough financial resources to improve their services.

In addition, LGU-managed systems and water districts often suffer from their very small sizes. However, it should be noted that the situation of small service providers seems to be improving. The 20 small service providers, which were included in the NWRB benchmarking exercise with their 2003 indicators, as a group show better performance in the NWRB Philippines Towns Water Utilities 2004 Data Book. Continuity improved from 20 to 21 hours per day, metering improved from 98% to 99%, tariffs increased by 12%, and staff was reduced from 7.6 to 7.1 employees per 1,000 connections. It is worth mentioning that the share of NRW deteriorated from 23% to 24%.^[55]

In Metro Manila, the fact that one of the two concessionaires has gone bankrupt reveals the sector's financial problems, even though it was also caused by the Asian financial crisis. On the other hand, Manila Water makes a modest income and coverage targets have been partly achieved.^[87]

The NWRB Philippines Towns Water Utilities 2004 Data Book contains an indicator which shows the cost recovery situation of each service provider, the operation ratio. Therefore, the total annual costs for operation and maintenance are divided by the annual revenue. Consequently, an operation ratio under 1 means that revenues cover the costs of operation and maintenance. Out of the 45 participating utilities in 2004, only 5 had an operation ratio of more than 1 and thus did not cover their costs. All the loss-making providers were operated directly by LGUs, and were mostly characterized by a high share of NRW, poor service continuity, low tariffs, and low coverage within their respective service area. The five best-performing service providers consisted of 4 Water Districts and one private operator.^[88]

Investment

According to the World Bank, investment in water supply and sanitation in the period 1983-2003 has been far below the required levels to maintain assets, to expand access and to improve service quality. Total investment has fluctuated at around P3 billion–4 billion a year, while alone the cost of implementing the Clean Water Act of 2004 has been estimated at up to P35 billion a year.^[89]

Financing

Outside the privatized services in Metro Manila, one source of finance for water supply are government grants channeled through the Local Water Utilities Administration (LWUA) and the Municipal Development Funds Office (MDFO). But these are far from sufficient to meet investment needs, which is why loan financing is necessary. Some LGUs obtain loans from public banks such as the Development Bank of the Philippines (DBP) and the Land Bank of the Philippines (LBP), which in turn obtain some of their funds from the World Bank or JICA from Japan (see below).^[90]

To partly fill the remaining financing gap, an innovative mechanism has been introduced to blend limited public donor funds with commercial lending in local currency from private banks: the Philippine Water Revolving Fund. Before its launch in 2008, LGUs and water districts did not know how to prepare business plans for commercial banks and commercial banks did not know much about these potential clients and perceived water supply as an excessive risk. To overcome this problem, USAID, JICA and the Department of Finance set up the Revolving Fund which is the first of its type in a developing country. Technical assistance trained LGUs in writing business plans and bank staff in appraising loan requests for water supply projects. In addition, a credit rating system for borrowers in the water sector was set up and a guarantee system was set up to lower the risk for the banks. Under this system, the LGUGC (Local Government Unit Guarantee Corporation) guarantees 85% of loans from commercial banks, with a counterguarantee from USAID's Development Credit Authority.

In parallel to the loans from commercial banks, the Development Bank of the Philippines (DBP) provided co-funding in subsidized loans that were refinanced with a loan from JICA. The Revolving Fund mobilized US$58 million in loans from commercial banks for 22 projects over three years, in addition to US$37 million from DBP/JICA. While banks normally extended loans only for up to 10 years, under this arrangement they provided loans with a maturity of up to 20 years that match the long-term nature of infrastructure investments. The initial perception that lending in the water sector was very risky could be overcome, so that some commercial banks now lend without guarantees and without co-funding from the DBP.^{[91][92][93][94]}

In Metro Manila, investments are financed by the two private concessionaires. In the case of Manila Water, one of the concessionaires, water supply investments are refinanced through the stock market, loans and equity from the International Finance Corporation, as well as local currency bonds. Investments in sanitation are financed by the World Bank through MWSS (see also Water privatization in Metro Manila, section on financial arrangements).

External cooperation

External development agencies that work on water supply and sanitation in the Philippines include the Asian Development Bank, Germany, JICA, USAID and the World Bank.

Asian Development Bank (ADB)

In 2008, the Asian Development Bank (ADB) will decide on the proposed Water District Development Project to continue its long-term cooperation with LWUA.^[95]

Furthermore, the ADB contributes through the MWSS New Water Source Development Project, which was approved in 2003 and will end in October 2008. The ADB contributes US$3.26 million, whereas MWSS provides US$1.71 million. It seeks to develop up to 3 water source projects for Metro Manila and to improve the financial management as well as the accounting and fiscal control systems of MWSS. In 2008, studies for 2 water source projects were completed. The project places emphasis on environmental and social impacts.^[96]

Germany

The German technical cooperation agency GTZ supports the sector through the rural water supply and sanitation program, designed to improve the living conditions of the poor in selected rural areas of the country. The program seeks to overcome the institutional confusion and to strengthen governmental organizations at the national, provincial, and municipal levels. The main program partner is the Department of Interior and Local Government (DILG). In addition, the decentralization plan of the National Water Resources Board is supported. The program, which runs from 2006 to 2009, has already achieved a successful introduction of low-cost options for sanitation, the construction of dehydration toilets, and the first Philippine constructed wetland, treating wastewater from about 700 households.^[19][97]

World Bank

The World Bank supports the Philippine water supply and sanitation sector through various projects.

Manila Third Sewerage Project

In 2007, the World Bank approved an investment loan of US$5 million. The objectives of the project are to assist the Philippine government in reforming institutions in order to attract private investment in the wastewater sector, to improve the coordination of institutions responsible for preventing water pollution, and to promote innovative wastewater treatment techniques. The project, which runs from 2007 to 2012, provides technical assistance as well as support for institutional coordination and private sector involvement.^[98]

The project follows the Manila Second Sewerage Project, which was carried out from 1996 to 2005. After the privatization of MWSS, it was restructured in order to adapt it to the new institutional framework. The objectives were to (i) reduce the pollution of waterways in Metro Manila and its surrounding bays; (ii) reduce the health risks caused by human exposure to sewage in Metro Manila; and (iii) establish a gradual low-cost improvement of sewerage services in Metro Manila. From 1997 to 2005, the number of people with sewer connections increased from 721,000 to 1,101,000 and the population with regularly desludged septic tanks rose from only 1,600 to 288,000. The total cost of the project was US$48.06 million.^[99]

National Program Support for Environment and Natural Resources Management Project

The project aims to assist the Philippine Department of Environment and Natural Resources (DENR) to improve its service delivery through a better allocation of its limited financial resources. The components of the projects include integrated ecosystem management and environmental and natural resources management. The World Bank approved a US$50 million loan in 2007 for the project which runs from 2007 to 2011.^[100]

Urban Water and Sanitation Project APL2

The second Local Government Unit (LGU) urban water project aims to reach approximately 40 LGU-operated water systems, which are given technical assistance and financial support. The four components of the project are to: (i) finance civil works, equipment, and supervision for improved water supply systems in LGUs, including private sector participation where feasible; (ii) finance improved sanitation infrastructure; (iii) provide investment and assistance in micro-drainage infrastructure; and (iv) provide funds for the hiring of a construction supervision consultant and specialized consultants. The World Bank decided to contribute through a US$30 million loan to the project, while the remaining US$5.2 million are financed by local institutions. The project began in 2001 and will end in 2008.^[101]

The World Bank supports private sector participation through Design-Build-Lease contracts and Long-Term Operation and Maintenance contracts between LGUs and private operators. Therefore, the Development Bank of the Philippines (DBP) and the Land Bank of the Philippines (LBP) channel financing from the World Bank to LGUs, which engage private operators. Under the Design-Build-Lease contracts, valid for 15 years and renewable for an additional 15 years, a local private operator prepares, builds, and operates a new water supply system. A World Bank loan channeled through the DBP finances 90% of the construction cost, and the remainder is contributed through the LGU. The water tariff must cover expenses for operation and maintenance, as well as a lease fee and a return for the private operator.

Long-Term Operation and Maintenance contracts are used in LGUs which recruit a private company to construct a new water supply system and later engage water associations or user cooperatives to operate the system under the contracts, which are awarded for 15 years with the possibility of renewal for another 15 years. Similar to the Design-Build-Operate contracts, 90% of the construction cost of the water system is financed with a World Bank loan channeled through the LBP. The water user groups are required to work under commercial rules. They have full administrative, accounting and financial autonomy.^[90]

See also

• Pollution of the Pasig River

General:

• Environment of the Philippines

References

External links

Service providers

• Metropolitan Waterworks and Sewerage System (MWSS)
• Manila Water Company (Concessionaire of the East Zone of Metro Manila)
• Maynilad Water Services, Inc. (Concessionaire of the West Zone of Metro Manila)
• Philippine Association of Water Districts
• Local Water Utilities Administration

Regulation and policy

• Metropolitan Waterworks and Sewerage System Regulatory Office
• National Water Resources Board (NWRB)

Multi-lateral agency efforts

• Sustaining Water for All in a Changing Climate - The World Bank, 2010, Special case study on water resources in the Philippines, pgs. 82-87.

Non-governmental organizations

• Philippine Water Partnership, "a non-profit corporation geared towards promoting and implementing Integrated Water Resources Management"

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